When I was at business school long ago we were told about the Efficient Markets Hypothesis (EMH).

Many people here are involved with investing in the stock market. As the EMH suggests that choosing shares at random is virtually as good as any other scheme, what arguements would you put forward to refute the EMH please?

It's investing blind for starters.

Investing requires the application of a strategy - that requires research, etc.

The EMH, in its basic interpretation, pre-supposes that a share price reflects all of the information available in the market at that time. This, in my opinion, is a flawed theory. It is based on the efficient operation of the market, its partcipants and the regulations within those markets, which doesn't happen.

Take Lehman Brothers as a current example. If EMH was truly correct Lehman would have failed before it did. The CEO of Lehman, not so long ago, made it clear that Lehman did not need further funds, then promptly raised money... did the market know what the CEO knew... of course not, therefore the price could not have been correct and the market was inefficient.

You could argue that this was not news available in the market, and therefore EMH stands, not so, as the regulatory situation surrounding the markets is there to make sure 'material facts' are available to the market... saying you don't need funding and weeks later actually raising money is incongruous. It takes weeks to put together a fund raising document for a few million.. for a few hundred million it would not take less time! Was the CEO not aware of the problems, or was he trying to buy time? Your call.

There are various studies on options and futures movements prior to takeover announcements. This is insider trading at work, how does the share price reflect inside knowledge being used in the options market. Do a search on 'Bear Stearns' options investigations.. or something like that.

This is an investigation into options trades of some $1.7mn that 'bet' on Bear Stearns dissapearing. The trades were so far out of the money that the odds of the trade coming good were larger than winning the lottery and yet it happened and paid out hundreds of millions in profits... a good guess or insider trading? Your call.

Having worked in the markets for many years I have seen many instances which I believe were price manipulation or insider trading patterns. This leads me to believe that you have to have many weapons at your disposal to 'beat the system', one of those is the ability and discipline to 'cut and run' quickly. Your research may be telling you one thing, those in the markets may be doing, or know, something that you and the markets don't.

Hope this helps.